Evaluating Tokyo Gas After 18% Monthly Surge and Renewable Energy Expansion News

• Ever wondered if Tokyo GasLtd's strong performance means it is still good value, or if it's already priced to perfection? You're not alone. Let's dig in to see what's really going on.
• The stock has jumped 4.1% in the past week and a remarkable 18.1% over the last month, building on a stellar 44.4% year-to-date return and an impressive 43.0% gain over the last 12 months.
• Recent headlines have zoomed in on Tokyo GasLtd's expansion plans, highlighting partnerships in renewable energy and a push to diversify beyond traditional gas services. Investors are taking notice, with the share price reflecting growing optimism tied to these strategic moves.
• Right now, Tokyo GasLtd has a valuation score of 2 out of 6, meaning it is only undervalued in a couple of areas. We will examine what goes into these scores, but stick around for a powerful alternative approach to truly sizing up value before you make your next move.

Tokyo GasLtd scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Tokyo GasLtd Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates Tokyo GasLtd's intrinsic value by forecasting its future cash flows and discounting them back to their value today. This approach helps assess whether the stock is trading at a price that reflects its long-term earning potential.

For Tokyo GasLtd, the most recent Free Cash Flow is ¥146,337.7 million. Analyst forecasts project the company's annual cash flows over the next five years, with estimates continuing out to 2035. For example, projected Free Cash Flow in 2030 is ¥78,350 million. Values after that are extrapolated using modest decline rates. All cash flows are presented in millions of yen, consistent with the company's reporting currency.

After calculations, the DCF model indicates an intrinsic value of ¥5,370 per share. This value is 17.9% below the current share price, suggesting the stock is overvalued on a pure cash flow basis at this time.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Tokyo GasLtd may be overvalued by 17.9%. Discover 920 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Tokyo GasLtd.

Approach 2: Tokyo GasLtd Price vs Earnings (PE Ratio)

The Price-to-Earnings (PE) ratio is a popular metric for valuing profitable companies like Tokyo GasLtd. It offers a simple way to compare how much investors are willing to pay for each yen of earnings the company generates. For profitable businesses, the PE ratio provides an intuitive snapshot of relative value.

What counts as a normal or fair PE ratio depends heavily on factors such as growth expectations and risk. Higher growth and lower risk typically command higher PE multiples, while slow-growing or riskier firms usually trade at lower ratios.

Currently, Tokyo GasLtd trades at a PE ratio of 11.6x. This is lower than both the Gas Utilities industry average of 14.4x and the average of selected peers at 16.3x. However, instead of just comparing to these benchmarks, it is crucial to look at the company’s specific context. That is where Simply Wall St's Fair Ratio comes in.

The Fair Ratio, calculated exclusively by Simply Wall St, estimates what Tokyo GasLtd’s PE ratio should be given its earnings growth prospects, industry positioning, profit margins, market capitalization, and risk profile. This proprietary measure provides a tailored benchmark, making it more meaningful than industry or peer averages, which do not account for company-specific strengths and weaknesses.

Tokyo GasLtd’s Fair Ratio is 7.4x, noticeably lower than its actual PE of 11.6x. This signals the stock may be trading at a premium given its current fundamentals, suggesting investors might be paying more than what is justified when all risks and growth drivers are considered.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Tokyo GasLtd Narrative

Earlier we mentioned there is a better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal perspective on a company. It is the story you believe will play out for Tokyo GasLtd, including your own fair value and estimates for future revenue, earnings, and profit margins.

Narratives connect each company’s story to a financial forecast and then to a fair value, bridging the gap between the numbers and real-world events. This makes them both powerful and easy to use, which is why millions of investors use Narratives within the Community page on Simply Wall St's platform.

With Narratives, you can quickly see how your assumptions affect fair value, track when your view of Tokyo GasLtd’s price signals a buy or sell, and react with confidence when new information arrives, since Narratives update automatically with each important event or earnings release.

For example, one investor might see Tokyo GasLtd's focus on renewables as a path to significant growth and value it much higher, while another expects slow industry change and prices the stock far lower based on more cautious forecasts. Narratives make it simple to compare these different views side by side and make smarter investment decisions.

Do you think there's more to the story for Tokyo GasLtd? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com